are offered to large industries to get them to come to cities. my understanding of it, which is limited, is that if a city wants a large industry to come and set up business (and therefore employ a lot of citizens) then it either has to offer some sort of tax abatement, or the industry will go somewhere else. of course the long term effects of this sort of thing aren't always positive... without being able to generate tax revenue from industries, cities sometimes have a hard time making ends meet... which is something my city government is facing now (the only major employer that was on the tax roll folded earlier this year). but it's a double-edged sword. if you want the industry to come in and employ people (which is positive) then you have to offer tax breaks (which can be negative... but isn't necessarily so).
i think, though, that big industry that provides factory labor in the united states is on its way out, and so it is becoming increasingly necessary to find new ways of generating funds to run cities. and... yeah, this has nothing to do with the capitalism/communism debate.